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What Biden's tax plans mean for businesses

Rohit Kumar, Co-Leader of PwC’s National Tax Office, and Former Deputy Chief of Staff to Senate Majority Leader Mitch McConnell, joins Yahoo Finance's Alexis Christoforous to break down PwC's 2021 outlook for tax policy.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back. We know President Biden has vowed to roll back the Trump tax cuts of 2017. But the ongoing pandemic and the economic challenges it brings may handcuff lawmakers when it comes to just how much they can do with regards to tax policy.

Joining me now is Rohit Kumar. He is co leader of PWC's National Tax Office. He's also the former deputy chief of staff to Senate Majority Leader Mitch McConnell. Good to have you here, Rohit. So how likely is it that we are going to get meaningful tax policy changes in the next year or two?

ROHIT KUMAR: Well, whether they're meaningful or not, I think, is in the eye of the beholder. But I do think we are going to see tax policy changes. And I wouldn't be surprised if they were carried into law at some point in 2021.

I don't think that happens in the very near term. I think the very near term is clearly focused on COVID recovery, COVID relief. And the administration and Secretary Yellen, when she testified before the Finance Committee last week, was pretty clear that Democrats aren't envisioning near-term tax policy or tax increases.

There'll be some tax policy changes, but not tax increases. But I think the latter half of the year, and I agree with Matt, who spoke earlier, I think it's second half of the year that we're going to see some change to the corporate rate, although I don't know that I agree that it would be as high as 28%, but certainly some increase in the rate seems likely, some increase in the individual rates. I think all of that is coming, but it's coming the second half of the year.

ALEXIS CHRISTOFOROUS: The president's Build Back Better recovery proposals really do hinge on taxing corporations, raising the corporate tax rate, taxing higher-earning individuals. If he's not able to do that in a timely fashion, what happens to the economic recovery?

ROHIT KUMAR: Yeah, so look, I think the recovery is sort of, at least in the near term, more contingent upon maybe the COVID relief package that will be, I think, processed Q1 and maybe a little bit in Q2, and then, of course, the vaccines, right, how quickly, how effective we roll out the vaccines. The Build Back Better agenda, especially the infrastructure piece of the ledger, while that might be good for the long-term health of the economy, in truth, there is very little sort of short-term stimulus effect from infrastructure spending. One thing we learned from going back to 2009 is there's not a lot of shovel ready that's really shovel ready that doesn't already have a financing stream behind it.

Infrastructure has it just a long tail on it. It's important. And we have underinvested in infrastructure in this country for decades, and so I'm not saying it's not worth doing. But I don't know that that is the key to a strong Q3, Q4 or not.

ALEXIS CHRISTOFOROUS: Lay out for us what these higher taxes could mean for corporate America. Earlier this week, we had EY CEO Carmine Di Sibio on. And he said if Biden starts raising taxes on corporate America, it's going to push US businesses out of the country. We've heard that song before. It doesn't always come true. What do you think the effect will be?

ROHIT KUMAR: Yeah, it's Interesting, so we actually-- we released our tax policy outlook earlier this week covering many of these topics. And look, every company is different, right? There are some companies for whom an incremental increase in the corporate rate reduces investment but isn't sort of trajectory altering for the company.

To me, the risk is probably greater on the changes on the international side of the ledger. We have a very new and fairly complicated new regime for the way we tax-- the US government taxes the overseas income of US-headquartered multinationals. And the real risk is if you overshoot the mark there and really make being a US-headquartered multinational a real competitive disadvantage against being a foreign-headquartered multinational, that's where you see the kind of risk that was being discussed earlier this week, where-- look, pre-2017, it seemed like every six or nine months, some iconic US company was announcing, hey, we're merging with another company and we're relocating our headquarters. And guess what? That isn't going to be in the United States.

And so it's really on the international side. I don't want to downplay the importance of the domestic rate, because that's how we attract global investment dollars. If I'm a CFO and I've got a billion dollars of investment spend for 2022, right, places where rates are higher are just less likely to attract that new investment dollar.

But in terms of the kind of behavior that you were discussing, that is really, to me, more driven by the way in which we tax the overseas income. And the challenge there is it's just incredibly complicated. And the risk of overshooting the mark is really quite severe.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Rohit Kumar, co-leader of PWC's National Tax Office, thanks so much for being with us.

ROHIT KUMAR: Thanks for having me.